Snapshot of recent developments
Tax Alert - October 2022
Tax Legislation and Policy Announcements
Anti-money laundering exemption for tax transfers
On 13 September 2022, The Associate Minister of Justice granted a class exemption for accounting practices under the Anti-Money Laundering and Countering the Financing of Terrorism Act 2009 (AML/CFT Act). This class exemption is valid until 14 July 2027. Accounting practices (including accountants, bookkeepers, tax agents, and insolvency practitioners) carrying out most types of tax transfers under the Tax Administration Act 1994 on behalf of their customers are now covered by the class exemption. This exempts accounting practices from most (but not all) obligations under the AML/CFT Act.
Tax Annual Rates 2022-23 Bill – First reading & Submission due date
On 21 September 2022, the Taxation (Annual Rates for 2022–23, Platform Economy and Remedial Matters) (No 2) Bill received its first reading. The Bill has been referred to the Finance and Expenditure Committee with a report-back date of 2 March 2023. Parliament is now accepting submissions with the deadline of 2 November 2022.
Deposit Takers Bill introduced
On 22 September 2022, the Deposit Takers Bill was introduced into Parliament. The Bill aims to guarantee New Zealander’s deposits (up to $100,000) held in any eligible institution (deposit takers such as banks, credit unions, building societies and finance companies) if the institution fails. This is the third piece of legislation from the review of the Reserve Bank Act, following the Reserve Bank of New Zealand (Monetary Policy) Amendment Act 2018 and the Reserve Bank Act of New Zealand Act 2021.
The scheme will be pre-funded by levies on deposit takers and support by a Crown backstop. The levy is expected to be risk-based with deposit takers paying different rates depending on an assessment of the risks they pose.
The Bill will make consequential amendments to several Acts including the Child Support Act 1991, the Customs and Excise Act 2018, the Gambling Act 2003, the Income Tax Act 2007, the KiwiSaver Act 2006, and the Tax Administration Act 1994.
TOP announces 2023 election tax policy
On 3 October 2022, The Opportunities Party (TOP) announced its two-phase tax policy for the 2023 election which included $6.35b in income tax cuts, paid for by a land tax on residential housing. Under phase 1 of the TOP policy a tax-free threshold of $15,000 would be introduced, followed by a tax cut for middle-income earners who would only pay 20% for income earned between $15,001 and $80,000. A new 35% rate would apply for income between $80,001 and $180,000, while the current 39% rate would remain. To pay for this a land tax of 0.75% on the value of residential property would be applied. The land tax would replace the current bright-line test, would not apply to rural, Māori and conservation land and could be deferred for superannuitants. Under Phase 2, a universal basic income (UBI) will be established. The UBI will provide $16,500 annual tax free income to all citizens and residents aged between 18 and 65. This will be accompanies by single personal, company and trust tax rate of 35%. TOP says the plan would be fiscally neutral. TOP would also write off all $2b of beneficiary debt owed to the Ministry of Social Development.
Inland Revenue statements and guidance
Product Ruling (mortgage offset arrangement) – Westpac
On 14 July 2022, Inland Revenue published BR Prd 22/09 - Westpac New Zealand Limited. The Arrangement is a mortgage offset arrangement pursuant to which Westpac customers can elect to use the balance of eligible Westpac transaction and savings accounts to offset against home loan accounts to reduce interest payable on those home loan accounts (Choices Offset Arrangement).
Issues ruled on under the Arrangement
- Offsetting does not, of itself, give rise to any income or expenditure under the FA rules. Fees payable by a borrower to Westpac for the Choices Offset Arrangement constitute consideration for the purposes of the FA rules.
- No holder of a Linked Deposit Account derives any interest income on such accounts (section CC 4) and Westpac does not pay any interest and has no obligation to deduct resident withholding tax or non-resident withholding tax or pay approved issuer levy.
- The Arrangement is not an indirect associated funding arrangement under section RF 12I.
- No income arises under section CC 7 for Westpac or its customers
- Sections BG 1 and GB 21 do not apply
The ruling applies from 1 April 2022 to 31 March 2027.
Product Ruling (FBT): Sustainable Mobility Limited (trading as Zilch)
On 3 August 2022, Inland Revenue published BR Prd 22/04 - Sustainable Mobility Limited (trading as Zilch). The Arrangement is the provision of primarily electric vehicles owned by Sustainable Mobility Limited (trading as Zilch) to a business customer who uses the vehicles for business purposes. The Arrangement also enables an employee of the business customer to pay Zilch a price equal to the price Zilch charges a member of the public for the use of the vehicles for their private purposes, subject to a discount of up to 15%.
How sections of the Income Tax Act 2007 apply to the Arrangement
- None of the features of the Arrangement give rise to a “benefit” to a business customer’s employees for the purposes of section CX 2(1)
- Discounting Zilch provides in respect of private bookings made and paid for by a business customer’s employees through the business booking portal does not give rise to a “fringe benefit” for the purposes of section CX 2(1)
- Neither section GB 31 nor section GB 32 applies to the Arrangement
The ruling applies from 1 July 2022 to 30 June 2025.
QWBA – Treatment of bloodstock breeding
On 6 September 2022, Inland Revenue published QB 22/07 - Income Tax and Goods and Services Tax – Treatment of bloodstock breeding. This Question We’ve Been Asked (QWBA) explains how the bloodstock provisions apply when a person is purchasing their first horse with a view to breeding it for profit in the future. In the meantime, they will race the horse for several years to try to improve its breeding value.
Draft Interpretation Statement: GST - Specified agents of incapacitated persons, and mortgagees in possession
On 8 September, the Inland Revenue published PUB00426 - GST – Section 58: Specified agents of incapacitated persons, and mortgagees in possession for public consultation, replacing a 1995 policy statement and extends the analysis further than what was previously covered. This Statement reiterates the view that where a registered person dies or is in liquidation or receivership, then their personal representative, liquidator, or receiver will be a specified agent of an incapacitated person and liable to fulfil the GST obligations related to the taxable activity in question.
The deadline for comment is on 8 November 2022.
Draft Specification – File Specification for payment service providers
On 9 September 2022, Inland Revenue provided further details on the file specification information required for payment service providers. The purpose of this document is to provide a specification for the provision of data to Inland Revenue by Payment Service Providers (PSPs).
A payment service provider is defined as a third-party business that facilitates payments for goods and services between customers and merchants. This specification will help ensure that Inland Revenue can load and combine data received from the large number of PSPs into actionable intelligence. Further, this helps provide equality of compliance costs by requesting data in the same format from all PSPs. This specification has been aligned as closely as possible with the reporting specification of the ATO.
Tax Counsel Office current work programme 2022-23
The Tax Counsel Office at Inland Revenue has updated its Public Guidance Work Programme 2022-23 (as at 5 September 2022). Seventeen new projects have been added for 2022/23, including three re-issue projects where public items are expiring during the year. The remainder of the programme contains items rolled over from the 2021/2022 programme.
OECD Forum on Tax Administration
On 28-30 September 2022, the Forum on Tax Administration held its plenary meeting in Sydney bringing together Commissioners from tax administrations across the globe. The following reports have been released during this event:
- The Bilateral Advance Pricing Arrangement Manual provides tax administrations and taxpayers with information on the operation of BAPAs and identifies 29 best practices for BAPAs without imposing a set of binding rules.
- The Digital Services report looks at how digital services can help SMEs comply with their tax obligations, leading to reduced burdens and increased compliance rates.
- Tax Administration 3.0 and Connecting with Natural Systems explores the possibilities for more seamless interaction between tax administrations and platform businesses operating in the gig economy.
- Tax Administration 3.0 and the Digital Identification of Taxpayers explores the current state of play on digital identity, the different domestic solutions adopted in several jurisdictions as well as the challenges related to cross-border processes.
- Tax Administration 3.0 and Electronic Invoicing examines the current state of play on electronic invoicing based on a global survey.
Tax Policy Reforms 2022
This publication from the OECD describes recent tax reforms across 71 countries and jurisdictions, including all OECD members and selected members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting. The report finds that tax reforms – notably reductions in taxes on labour and more generous corporate tax incentives – have been among the key policy tools that countries have used to stimulate growth and promote economic recovery from the pandemic. Personal income taxes and social security contributions were reduced in 2021 in almost all countries covered in the report, with most reductions targeted at lower-income households to support employment and provide in-work benefits. Many countries also increased corporate tax incentives to stimulate investment and innovation. The most significant VAT reforms focused on the digital economy and e-commerce, including strong growth in e-invoicing and digital reporting requirements. Property tax reforms were less common in 2021, with a small number of countries implementing measures to reduce the use of properties as investment vehicles and improve equity in the housing market.
October 2022 - Tax Alerts
- Frucor Suntory New Zealand Limited v Commissioner of Inland Revenue: the final destination, or just the beginning?